Date: 20000413
Docket: A-429-97
MONTRÉAL, QUEBEC, THE 13TH DAY OF APRIL, 2000
CORAM: THE HONOURABLE MR. JUSTICE DÉCARY
THE HONOURABLE MR. JUSTICE LÉTOURNEAU
THE HONOURABLE MR. JUSTICE NOËL
IN THE MATTER OF AN APPEAL FROM
THE TAX COURT OF CANADA
IN THE MATTER OF THE INCOME TAX ACT
BETWEEN:
JEAN RUFFO
Appellant
AND
THE MINISTER OF NATIONAL REVENUE
Respondent
JUDGMENT
The appeal is dismissed with costs.
| Robert Décary |
| J.A. |
Certified true translation
Martine Brunet, LL.B.
Date: 20000413
Docket: A-429-97
CORAM: DÉCARY
LÉTOURNEAU
NOËL, JJ.A.
BETWEEN:
JEAN RUFFO
Appellant
- and -
THE MINISTER OF NATIONAL REVENUE
Respondent
Hearing held in Montréal, Quebec, Thursday, April 13, 2000
Judgment rendered at the hearing in Montréal, Quebec, Thursday, April 13, 2000
REASONS FOR JUDGMENT OF THE COURT: LÉTOURNEAU, J.A.
Date: 20000413
Docket: A-429-97
CORAM: DÉCARY
LÉTOURNEAU
NOËL, JJ.A.
BETWEEN:
JEAN RUFFO
Appellant
- and -
THE MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Pronounced from the bench at the hearing in Montréal,
Quebec, Thursday, April 13, 2000)
LÉTOURNEAU, J.A.
[1] The appellant has failed to persuade us that Lamarre-Proulx J. of the Tax Court of Canada misconstrued and misapplied the legal principles applicable in this case,1 which were more fully developed by this Court in Soper v. Canada,2 Drover and Her Majesty the Queen,3 Cadrin and Her Majesty the Queen,4 and Wheeliker v. R.5
[2] Clearly, the appellant, who was the chief executive officer and a director of Les Services Alimentaires le Banquetier Inc., prolonged the company"s agony until its death through bankruptcy on May 19, 1993 by partially financing it with the statutory deductions he was supposed to levy on the employees" wages and remit to the Receiver General of Canada.
[3] This is clearly apparent from the following extracts from the appellant"s testimony:
| Q. So this was a report that you received, you said, every month, correct? |
| A. Yes. |
| Q. On different accounts of the company? |
| A. Yes, I have to say yes. |
...
| Q. So are you in a position to say... |
| A. Yes. |
| Q. ... whether the thirty thousand and ninety-one ($30,091) is in fact owing? |
| A. Yes, in fact, that was the amount owing. |
| Q. So, it was during ninety-two (92) that the company stopped making the remittances of federal deductions at source, is that correct? |
| A. Yes. |
| Q. And you were able to observe, when you were balancing the monthly books, that in fact there were deductions that were not being remitted? |
A. Yes.
| Q. What was your... All right, you were operating with a... you had some cash-flow problems, is that correct? |
| A. Yes. |
| Q. What strategy did you... |
| A. Sorry, yes? |
| Q. What strategy or what was your policy for the payment of the accounts so as to continue operating the company, were all the accounts being paid on an equal footing or were there some suppliers or were there certain debts that were paid more urgently? |
| A. The two accounts that were paid unquestionably, in priority, were the wages and the raw materials we needed in order to make the products. |
| Q. What were... |
| A. When I say in priority it was according to the priorities established by the suppliers. There are some suppliers with whom we had a much larger line of credit than with others. |
| Q. All right. And why did you give priority at that point to the payment of those two accounts, that is, the employees and the suppliers? |
| A. That was the only way to stay alive. |
| Q. So, you were aware, month after month, that there were some deductions at source that were unpaid, that you made the decision not to pay them in order to continue the operation of the company, is that correct? |
| A. Completely. Can I make a comment, however? |
4. Furthermore, as of July 15, 1992, the appellant was hoping, for example, to get $200,000.00 pursuant to an oral cooperative agreement with Homard Gidney Lobsters Ltd. But the only means of redress appearing on the company"s books, if this amount was paid at that time, which was not the case, consisted of paying the accumulated overdue accounts without any steps being taken to secure the payment of the ongoing deductions and preventing a future breach of this obligation.6 In fact, no remittance was made in accordance with this recovery plan and the failures to deduct continued in the following months while the firm was electing to pay the other creditors.
[5] As Vinelott J. said, in relation to the duty of a company manager to make the aforementioned deductions and remittances:7
| The directors of a company ought to conduct its affairs in such a way that it can meet these liabilities when they fall due, not only because they are not moneys earned by its trading activities, which the company is entitled to treat as part of its cash flow... but, more importantly, because the directors ought not to use moneys which the company is currently liable to pay over to the Crown to finance its current trading activities. |
[6] The appellant"s duty as a director was to anticipate and prevent the failure to pay the sums owing and not to commit such failure or perpetuate it as he did from March 1992 on in the hope that at the end of the day the firm would again become profitable or there would be enough money, even if it were wound up, to pay all the creditors.8
[7] While a director may, under subsection 227.1(3) of the Income Tax Act, be relieved of personal liability for unpaid deductions by showing that he acted with diligence, the appellant has not, in the circumstances, demonstrated the requisite diligence.
[8] For these reasons, the appeal will be dismissed with costs.
| Gilles Létourneau |
| J.A. |
Certified true translation
Martine Brunet, LL.B.
Federal Court of Canada
Appeal Division
Date: 20000413
Docket: A-429-97
BETWEEN:
JEAN RUFFO
Appellant
- and -
THE MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT
OF THE COURT
FEDERAL COURT OF CANADA
APPEAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
| DOCKET NO: A-429-97 |
| STYLE: IN THE MATTER OF THE INCOME TAX ACT |
JEAN RUFFO
Appellant
AND
MINISTER OF NATIONAL REVENUE
Respondent
| PLACE OF HEARING: Montréal, Quebec |
| DATE OF HEARING: April 13, 2000 |
REASONS FOR JUDGMENT OF MR. JUSTICE LÉTOURNEAU
DATED: April 13, 2000
APPEARANCES:
Christopher Mostovac for the Appellant
Daniel Bourgeois for the Respondent
SOLICITORS OF RECORD:
RAVINSKY RYAN
Montréal, Quebec for the Appellant
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Ontario for the Respondent
__________________1 Ruffo v. R., [1988] 2 C.T.C. 2203 (T.C.C.).
2 [1998] 1 F.C. 124 (F.C.A.).
3 F.C.A. no. A-331-97, May 13, 1998.
4 F.C.A. No. A-112-97, December 17, 1998.
5 [1999] 2 C.T.C. 395.
6 Appeal record, vol. II, p. 178.
7 Re Stanford Services Ltd., [1987] B.C.L.C. 607, at p. 617.
8 Wheeliker v. R., [1999] 2 C.T.C. 395, at p. 415.